Wall Street Banks Attempt to Edge Out Fannie and Freddie

Check out this comprehensive article from The New York Times about Fannie Mae, Freddie Mac and Wall Street’s attempts to take over their domain. A behind-the-scenes effort of Wall Street banks to take over the mortgage market is driven by advocates who switch between roles in Washington and the private sector…

Seven years after their dubious lending practices helped push the United States economy to the brink of disaster, the nation’s largest banks are closing in on a long-sought goal: to unseat Fannie Mae and Freddie Mac, the mortgage finance giants, and capture their share of the profits in the country’s $5.7 trillion home loan market.

Taking place largely behind the scenes, the movement to take over the mortgage market has been propelled in part by a revolving door between Washington and Wall Street, an investigation by The New York Times has found.

While the big banks’ effort to enshrine their vision into law has failed so far, plans to replace Fannie and Freddie — which have long supported the housing market by playing a unique role as so-called government-sponsored enterprises, or G.S.E.s — are still very much alive. The Obama administration has largely embraced the idea, and government regulators are being pushed to put crucial elements into effect.

A review of lobbying records, legal filings, and internal emails and memorandums, as well as housing officials’ calendars and White House and Treasury visitor logs, illuminates the banks’ effort. Assisting in this work, the documents show, is a group of high-level housing finance specialists who have moved back and forth between public service and private practice in recent years.

The charge began under Michael D. Berman, who has served not only as chairman of the Mortgage Bankers Association, one of the industry’s most influential lobbying organizations, but also as a senior adviser to Shaun Donovan, who was the secretary of Housing and Urban Development from 2009 to 2014.

Conversely, Mr. Berman recruited David H. Stevens — who was one of the lead architects of the Obama administration’s proposal to phase out Fannie and Freddie — to the mortgage bankers group, where Mr. Stevens is now president and chief executive.

Many in Congress believe Fannie and Freddie contributed to the collapse of the housing bubble, and they still rest on a shaky financial foundation, largely because of actions taken by the Treasury and the companies’ regulator.

While they continue to pose a risk to taxpayers, Fannie and Freddie so far have not been replaced by Wall Street behemoths, partly because local banks popular with many lawmakers are resistant. Moreover, some members of Congress are concerned that low-income borrowers would not be well served by private lenders.